Summary

• In preparing a "great" and "green" 2008 Olympics, Beijing will launch a US$ 34 billion investment programme to build the Olympic Village, improve its transportation and telecommunication infrastructure, as well as restore a clean environment.

• To ensure high international standards, Beijing will invite international bidding for designing, constructing and managing the Olympic-related facilities. The Olympic-related projects should be attractive as they are likely to see good financial returns. Leveraging their mainland experience, Hong Kong investors are in a good position to form partnerships with international companies to bid for the infrastructure work.

• Complementary to infrastructure projects and other organisational needs, Hong Kong services providers will also find good business opportunities in the Beijing Olympics. For example, Hong Kong companies' experience in IT services such as call centres, electronic ticket management and smart card technology should be required to stage a technologically-advanced Olympic Games. Besides, Hong Kong's Airport Authority, MTRC, KCRC and bus companies are in a good position to provide consultancy on massive passenger flows to the Beijing's transportation authorities.

• Nearer to the staging of the Olympics, business opportunities will also emerge in the licensing sector. Traditionally, companies will be licensed by the National Olympic Committee and the Olympic Games Organising Committee to create souvenirs relating to the national Olympic teams or the Games. Hong Kong manufacturers, with their production on the mainland, excel in supplying competitively-priced, quality sporting goods and gift items, so will stand a good chance of benefiting.

• Hong Kong's tourism industry, including the hotel sector and tourist operators, will benefit from the enormous opportunities in the mainland. Hong Kong, though not being the hosting city, will also gain from the "spillover effect" of an upsurge in visitors to China.

• To keep abreast of developing business opportunities, it is essential for Hong Kong companies to take a pro-active approach in monitoring developments and liaising with the Beijing Olympic Games Organising Committee or other relevant bodies. For service providers, it would be advisable to set up a presence in Beijing to stay close to their clientele.
  

Background

Beijing won the bid to host the 2008 Summer Olympic Games on 13 July. Within the next five months, Beijing will have to set up an Organising Committee for the Olympic Games (OCOG) to oversee the preparation and the actual running of the Games in 2008. To this end, Beijing has already set up a preparatory task force.

In preparing a "great" and "green" Olympics, Beijing will launch a US$ 34 billion multi-year infrastructure and environmental improvement programme. Moreover, the Beijing Municipal Government and the Beijing OCOG will work together to speed up the development of its service sectors, including transportation, IT services and tourism.

The infrastructure boom and increasing business for sectors as diverse as real estate and advertising, are expected to add some 0.3 to 0.4 percentage points to economic growth in China each year in the run-up to 2008. At the same time, foreign investment will be stimulated, as foreign companies strive to bid for Olympics-related projects to promote their products and services in the mainland market.

The Beijing government's commitment to host an excellent Games of international standards will require expert input from all over the world. In tandem with the mainland's impending accession to the WTO, the scope for investment and participation by foreign companies in China's Olympics-related projects will increase.

This paper explores the types of business opportunities that are open to Hong Kong companies in the Beijing Olympics and discusses how Hong Kong companies can increase their chances of winning these business contracts.

Infrastructure Investment

In the run-up to 2008, Beijing plans to spend a total of US$ 34 billion on the Olympic Games, including US$ 22 billion earmarked for modernising the nation's capital. In one of the most ambitious infrastructure projects so far, Beijing will build extensive Olympic-related sports venues and associated facilities, enhance its transportation and telecommunications networks, and install environmental protection systems.

In hosting the Olympic Games, Beijing will need 37 competition venues for various events. Of these, 22 will be completely new facilities, which will need to be constructed within a short few years. Construction of an Olympic Village, on an area of 80 hectares, will also need to begin shortly.

In the meantime, Beijing intends to enhance its transportation infrastructure. This will include additional road construction and an increase in the capacity of its subway system. At the same time, a computerised transportation supervision and coordination centre will be established to control the city's traffic. There are also plans for a third runway and a new terminal at the Beijing Capital Airport, which currently handles 35 million passengers per year.

Beijing will witness a substantial enhancement of its telecommunications infrastructure. There are plans to expand fibre-optic networks, including broadband networks, to cover all Olympic sites for delivering the sights and sounds of the Games to the world. A mobile communications network capable of handling 500,000 calls is to be installed in the Olympic site area. In addition, Beijing will establish a digital cable TV network capable of high definition TV transmissions from all Olympic venues.

Improving environmental protection is another major initiative for Beijing. In response to criticism regarding the existing level of pollution, the government has committed itself to a number of environmental programmes and measures. It will be required to treat or transform urban garbage into organic fertilizer and expand treatment capacity of Beijing's waste water. The government is to build more green belts along major rivers and rural areas and shift coal-burning factories to sites outside the capital, among other projects.

While a small part of the planned infrastructure projects will be financed by the Beijing OCOG, the rest will be financed by the Chinese National Government, Beijing Municipal Government and private investors within and outside China. Moreover, to meet the international standards, it is believed that the design, construction and management of most of the Olympic-related infrastructure facilities, including the Olympic Park, will be put up for international bidding. The Beijing CPC Committee and Beijing Municipal Government have started drawing up action plans for the overall organisation of the Olympic Games and nine specific planning areas ¹ .

Licensing Sector

Officially-licensed Olympic products are allowed to carry the emblems and mascots of the Games or teams and are designed to create a collection of commemorative souvenirs and memorabilia - such as t-shirts, pins, and caps of the Olympic Games and teams. Due to the popularity of the Olympic Games, sales of the licensed products are historically good and generate attractive business opportunities for manufacturers and distributors.

There are three tiers of licensing: the IOC (International Olympic Committee), NOC (National Olympic Committee) and OCOG. Traditionally, companies have been licensed by NOCs and OCOGs to create souvenirs relating to the national Olympic teams or the Games. These companies pay a percentage royalty, usually between 10% and 15% for the right to use the National or Games emblem on their merchandise for a short-term period.

The Sydney experience is instructive. By June 30, 1998, two years before the Sydney Olympics, SOCOG (the Sydney Organising Committee) had contracted 57 companies to produce a full range of apparel, collectibles and other merchandise, including mascot products, which were on sale throughout Australia. In view of the success of this licensing programme in the local markets, the IOC and SOCOG agreed to extend the programme to international markets, making these products available in more than 100 countries.

The Olympic Store was a unique feature of the SOCOG licensing programme. Several Olympic Stores, which sell the Sydney 2000 merchandise range, opened in major cities and airports throughout Australia. This programme gave manufacturers and retailers open access to the retail business.

As a result of the success of the Sydney licensing programme, it is believed that the Beijing equivalent will build on this model. Details of the Beijing licensing programme will be decided in due course by the IOC and the Beijing OCOG.

Other Related Service Sectors

Architectural design and estate management. Apart from the building of new stadia and other facilities, the expected rise in tourist arrivals and short-term accommodation demands will lead to both new hotel construction and refurbishment of existing hotels. China's commitment to run a "Great Olympics" will thus create tremendous pressure to hire professional expertise from around the world to help plan, develop and manage these facilities.

Advertising. This sector stands to gain in the lead-up to 2008, as there will be strong marketing programmes to publicise the Beijing Olympics. Moreover, marketing campaigns by official sponsors and other commercial participants will also increase demands on the advertising industry. Aside from conventional advertising, the Internet will also be an important channel for advertising.

Tourism. Helped by strong marketing programmes, the 2008 Olympics should lead to a heightened level of worldwide interest in Beijing as a tourist destination, and attract more visitor arrivals in the years to come. During the staging of the Olympic Games, an extra 1 million tourists are expected to visit Beijing, spending a total of US$ 5 billion. Booming tourism should not only impact positively on the hotel market, Beijing's restaurants, department stores and shopping arcades but will also enjoy higher revenues due to overall increases in tourist arrivals and spending.

Transportation services. Considering the large number of expected tourist arrivals, and the likely huge demand for commuting services between various sports venues and facilities during the Games, an effective mass transit system is important. It is foreseeable that during the Olympic period in 2008, daily traffic volume in Beijing will increase by 3 million people-per-hour. While the Chinese government has committed itself to expanding its transportation infrastructure, it will also need to improve the standards of bus, underground railway and other transportation services.

IT services. In order to stage a technologically-advanced Olympic Games and to fulfil the digital requirements of Beijing's Games, there should be advanced IT services support. Though China has developed mature computer hardware and software technologies, it may lag behind in commercial software applications, so will need to co-operate with international service providers and consultants.

Environmental technology. To create a "Green Olympics", Beijing hopes to improve its air quality to reach WHO standards and have 90% of its sewage and 98% of its garbage treated by 2005. Harking back to Sydney Olympics, Beijing's enviro-friendly infrastructure would also include solar-powered Olympic Village, water re-use and a selection of re-cycled or re-cylable materials within Olympic facilities.

Financial services. The huge financial needs generated by infrastructure projects and other related developments will create increasing demand for financial services. The demand for services such as project finance, leasing of capital equipment, loan syndications and insurance should grow.

Opportunities for Hong Kong

The majority of Hong Kong companies are elated about the Beijing Olympics. They expect an Olympics at home should bring in more business opportunities.

Given the scale and the international status of the Olympic Games, Hong Kong companies should develop special strategies in bidding for the Olympic infrastructure projects. Capitalising on their business networks both in China and in international markets, Hong Kong companies are well positioned to form partnerships with international players and mainland (particularly Beijing) companies to compete for the contracts. At the same time, capitalising on the advantages provided by the clusters of services industries in the SAR, Hong Kong companies are able to offer total solutions or integrated service packages so as to strengthen their pursuit of Olympic projects.

To keep abreast of rising business opportunities, it is essential for Hong Kong companies to take a pro-active approach in monitoring developments and liaising with the Beijing OCOG or other relevant bodies. For service providers, it would be advisable to set up a presence in Beijing to stay close to their clientele.

Opportunities in infrastructure and real estate projects

Beijing's huge infrastructure development programmes are reportedly having full financial support from the Chinese government. Moreover, as Olympic-related projects are likely to see good financial returns, they would appear to be more appealing to Hong Kong investors and developers.

While it is expected that most Olympic-related infrastructure projects will be put up for international tendering, a relaxation in regulations governing foreign joint ventures can be expected. Such ventures would typically provide architectural services, engineering services and related services sectors. Possibilities after China's WTO accession will also serve to increase the attractiveness of these projects for Hong Kong companies.

Hong Kong is already one of the major foreign investors on the mainland for infrastructure projects, including highways, power plants, water supplies and sewage systems. A major advantage for Hong Kong investors is their strength in providing a total package. They are experienced in providing one-stop solutions for multiple infrastructure needs, combining finance and technical expertise. To further enhance their competitiveness, Hong Kong companies are able to form strategic partnerships with overseas companies which have solid experience in designing and building the Olympic standard stadia.

There is also much room for investment in Beijing's real estate sector, particularly in hotels and residential property, given Hong Kong's experience and expertise in this sector.

Increasing infrastructure and property development in Beijing will result in rising demand for more construction and real estate services. These will include architectural and, engineering services, planning and specialist consultancies and property services. The construction of more hotels, coupled with massive infrastructure projects, should strengthen the demand for building materials, interior systems, design and furniture, all of which Hong Kong is able to supply. Improvement in environmental protection will likewise stimulate an appetite for related consultancies and technologies. In fact, a member of Beijing's Bidding Committee for the Olympic Games is from Hong Kong's environmental protection sector, indicating that Hong Kong's expertise in this area is recognised.

The SAR's financial institutions will also benefit as more Hong Kong companies are involved in the Olympic projects. Though Hong Kong financial institutions will be allowed to lend money to mainland local enterprises after China become a WTO member, the most probable customers for them remain Hong Kong companies. According to one banker in Hong Kong, they have already started negotiating deals with a couple of Hong Kong companies to finance their hotel projects in Beijing.

Opportunities in telecommunications and IT services

Helped by market openings in a large number of sectors with China's accession to the WTO, the enhancement of Beijing's telecommunications and IT infrastructure will augur well for Hong Kong companies. SAR companies can partner with international firms to participate in the provision of mobile/fixed-line services or to develop infrastructure.

Hong Kong companies are strong in providing value-added services and have solid experience in commercial applications such as call centres, electronic ticket management, smart card technology, webcasting, transaction platforms for mobile commerce and international communications, or performing a role in re-selling services.

Opportunities in other services

Hong Kong companies are well positioned to capitalise on an extensive demand for advertising and marketing. Hong Kong-based marketing services companies and advertising agencies, which have extensive international exposure, have a long history of operating in the mainland, and possess a deep understanding of China unmatched by firms from other parts of the world. Furthermore, Hong Kong's website operators are well suited to cater for the advertising needs of the Games.

Hong Kong's Airport Authority, MTRC, KCRC and bus companies are all experienced in handling massive passenger flows. Moreover, some Hong Kong bus companies are already operating in selected mainland cities, enhancing their position to provide consultancy and operation services to the transportation management authorities in Beijing.

Hong Kong's wealth of experience in tourism, and Hong Kong companies' extensive investment and participation in managing the mainland's tourism facilities, particularly hotel management, will mean enormous opportunities for Hong Kong in view of the growth of tourism in the mainland. At the same time, Hong Kong will directly benefit from the expected tourist boom on the mainland. As a major gateway and travel hub to the mainland, the Beijing Olympic Games should prop up visitor arrivals and spending in Hong Kong. Hong Kong travel agencies will also likely benefit from an increase in outgoing tours to Beijing and other parts of the mainland.

Opportunities in souvenir distribution

Though Hong Kong lacks big names and companies that are likely to become the official sponsors and suppliers of the Beijing Olympics, SAR companies should be able to benefit from an anticipated massive demand for Olympic memorabilia in the run-up to the Games and beyond. It is expected that the Olympic organiser will keep tight control on the domicile and production quality of the licensees of the souvenir products. Hong Kong manufacturers, with their production in the mainland, excel in supplying competitively-priced quality sporting goods and gift items, such as sports apparel and footwear, travel goods and toys and games.

While Hong Kong manufacturers will capitalise on licensing opportunities, they can adopt a more pro-active approach to directly participating in the distribution of Olympic-related products on the mainland, which is opening up its trading and distribution sectors in compliance with WTO accession requirements. With extensive experience and trading connections, they can even look for the possibilities of selling the licensed products in overseas markets.

Apart from Olympic memorabilia, the official sponsors will also leverage their involvement with the Games to launch marketing campaigns promoting themselves, their products and services to the mainland market. Their promotion campaigns will increase the demand for corporate gifts. Hong Kong companies which want to benefit from this emerging corporate gifts market will have to monitor which firms become sponsors. These usually include MNCs such as Coca-Cola, MacDonald's and Kodak. For the Games the list will include emerging mainland corporations that want to strengthen their image in the international markets.